How to Stop Your Supplier Relationship Management Failing

A couple of weeks ago I posted an update on LinkedIn in which I posed a question.

I said that at a workshop I ran, two people made these statements.

One said “Isn’t SRM another name for good contract management, it should be happening anyway?”

And the other said “Contract management is not the same as SRM. Contract management implies a conflict and micro measurement based on a legal document, SRM implies using the contract as the start point but extending the possibilities for winning to both parties.”

My question was “which of these two statements is correct?”

It is clear from the discussions that followed this post that there are a variety of views as to what SRM is and how you should use it.

So I began to think.

I went back to basics and asked myself what each of the individual words mean to see if that helped me to conclude what the combination means.

I don’t believe that there is much doubt in the context of SRM as to what supplier means (although a supplier could be an internal department or business unit as well as an external organisation whose ownership is different to yours).

So far so good.

But what about “relationship”?

For this I went to Dictionary.com and found two definitions that I think are helpful.

The first definition is that relationship means “a connection, association or involvement”.

Hmmm. This is interesting, as I have a personal relationship with a number of people but not always the same type of relationship. The relationship I have with my wife, for example, is clearly different to the relationship I have with the window cleaner. I can see how the former could be described as “involvement” and the latter as a “connection” or “association”.

We can extend this to the different types of relationship we have with suppliers. Some clearly produce involvement between our organisation and theirs (for example if the supplier produces a critical component for our end product) but others are no more than a connection or an association (such as low value and low risk items).

So there is a segmentation of suppliers; some with whom we are involved and others with whom we just have a connection or association.

I can also see how the segment described by the term involvement should lead to some kind of action resulting from that involvement. Action which adds value. Action which needs a structure and process if it is to be effective and sustainable. As the saying goes “action without a vision is a nightmare”.

Those segments where the relationship is more of an association or connection are probably more transactional in nature to a greater or lesser degree and so the same kind of action is not needed.

The second definition from Dictionary.com is that a relationship means “an emotional or other connection between people”.

So here is another dimension to our relationship with suppliers – people and their emotions.

This is important as emotions often drive attitudes and behaviours and these can and will have an impact on the actions we want to take with those suppliers with whom we have “involvement”.

However, they are probably less important when it comes to suppliers with whom we have just a connection or association. After all, if these suppliers misbehave we can wield our big procurement stick and make them conform or find new suppliers!

Finally, we come to the definition of management.

BusinessDictionary.com defines management as “the organization and coordination of the activities of a business in order to achieve defined objectives”.

Putting together the three words “supplier relationship management” using these definitions leads to the conclusion that SRM is not a one size fits all approach.

At one end of the scale we have those suppliers with whom we have just an association or connection; where the emotional connection with people in that supplying organisation is very low or even non-existent; and where management in the sense of coordinating activities to meet an objective is bound by processes such as tendering and P2P.

The other end of the scale, in my view, is far more interesting.

These are the suppliers with whom we have real involvement that leads to real actions that deliver real value. The emotional connection and commitment of the people in both your organisation and theirs is critical to the right activities taking place and delivering the right value as perceived by the Executive team. And all of this needs to be organised and coordinated if our objectives are to be met.

In other words, SRM as defined in this way needs a process – it doesn’t happen naturally across both organisations.

A critical question every procurement organisation needs to answer is whether or not it has a defined process that is agreed with their critical suppliers and stakeholders and which delivers demonstrable value. As Edward Deming said “if you can’t describe what you are doing as a process, you don’t know what you are doing”. Harsh but true!

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